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Brazil seeks stronger real to boost investment -govt sources
January 29, 2013 / 6:58 PM / 5 years ago

Brazil seeks stronger real to boost investment -govt sources

* Economic team more worried about investment than inflation

* Government will not allow real to return to 2012 highs

By Luciana Otoni

BRASILIA, Jan 29 (Reuters) - Brazilian policymakers have allowed the real to strengthen past the 2-per-dollar mark as part of a strategy to cheapen imported capital goods and boost much-needed investment in industry, a source at the Finance Ministry said on Tuesday.

A second source on President Dilma Rousseff’s economic team stressed that the government will not allow the currency to appreciate too rapidly against the dollar nor to return to levels seen early last year, when the real at 1.7 per dollar posed a threat to Brazilian exporters.

Both sources spoke on condition of anonymity.

The Finance Ministry source downplayed the impact of the strengthening currency on inflation.

“This change in the exchange rate has little impact on inflation, but helps boost imports of capital goods,” the source said, adding that the Finance Ministry sees inflationary pressures easing later in the year after a more difficult first quarter.

The real on Tuesday rallied past the 2-per-dollar level for the first time since July 2; that threshold for nearly seven months had been considered a boundary of a trading band informally set by policymakers.

Analysts saw the move as a sign that inflation concerns are starting to trample a government goal to stimulate exports, despite a November pledge by Finance Minister Guido Mantega that a real weaker than 2 per dollar “was here to stay.”

But Rousseff’s economic team has become increasingly worried about a lack of investment, which has been choking Brazil’s growth prospects.

In minutes of its latest monetary policy meeting, the central bank said Brazil’s economic recovery is mostly constrained by supply bottlenecks that cannot be solved by lowering interest rates.

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